Are Your Overdraft Procedures Putting You At Risk?

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Avoid inadequate, undocumented overdraft policies and procedures

In March of 2021, the Consumer Financial Protection Bureau (CFPB) reversed course on its January 2020 policy statement regarding the prohibition on abusive acts or practices “to better protect consumers and the marketplace … and to enforce the law as Congress wrote it.” The policy statement reversal signals a return to the regulation-by-enforcement model authorized under the Dodd-Frank Act.

The more focused approach on issues protecting consumers against unfair, deceptive, or abusive acts or practices (UDAAP)—along with an increase in the aggressive measures law firms are taking to target financial institutions with demand letters and overdraft class-action lawsuits—calls for steps to ensure your overdraft program’s policies and procedures are compliant and clearly disclosed to your customers.

Prioritize clear, comprehensive disclosures

Regulators have been steadfast regarding their expectations for providing consumers with clear, easily understandable disclosures and ongoing compliant communication to increase awareness of how to access and utilize overdraft services. With the recent increase in litigation targeting overdraft programs, compliant disclosures can be the best defense against the impact of potential legal action.

Areas that raise red flags for regulators and may lead to increased scrutiny from lawyers seeking class-action participation from consumers include:

  • Program information provided to new accounts
  • Reg E consent process (how to opt-in/opt-out)
  • Model Consent form
  • Fee amount
  • Posting order
  • Positive Swipe/Negative Settlement
  • Current vs. Available Balance
  • Error resolution
  • Information on lower-cost alternatives
  • Record of account holder communications
  • Multiple presentments

Protect your bank with an in-depth disclosure review

Utilizing best practices for program disclosures and ongoing, consistent communications can relieve compliance and legal stress, improve your overdraft program’s service delivery quality, and establish it as a trusted service for your account holders who experience a financial shortfall. However, when processes and disclosures are unclear or confusing—or an examiner comes across an issue that raises concern—addressing the situation can be time-intensive and costly.

When was the last time you took an objective look at your overdraft program disclosures and procedures?

The COVID-19 pandemic put overdraft program oversight on the backburner for many community banks as they dealt with more pressing concerns. Now is the time to re-evaluate your overdraft strategy to make sure it’s 100% compliant. While an internal review is critical and necessary, there is immense value in utilizing a trusted outside resource with:

  • Additional expertise and oversight
  • Knowledge of current regulatory and compliance expectations
  • Awareness of the types of disclosure errors that may trigger regulatory scrutiny or lawsuits
  • The ability to perform a comprehensive review of your program’s communication materials—including in-person and phone communication scripts—and employee training materials

A fully disclosed and well-communicated overdraft program makes for a consumer-friendly service for your account holders. Plus, it provides peace of mind against regulatory and legal risks. Does your bank make the grade? Find out with a complimentary overdraft disclosure review today.